Just prior to his Christmas break, President Obama signed a bill to extend many popular tax incentives (commonly referred to as “Extenders”). Understand that these Extenders expire on December 31, 2014. Individuals only have a few days to make decisions regarding this tax bill!
Called the Tax Increase Prevention Act of 2014, the one-year retroactive extension effectively allows taxpayers to claim the popular but temporary incentives on their 2014 return filed in 2015. Here are some highlights as it applies to individual taxpayers:
State and Local Sales Tax Deduction
This deduction is not only beneficial to taxpayers in states without an income tax. It also allows taxpayers who make a big ticket purchase, such as a motor vehicle, the benefit of weighing the deduction for state and local general sales taxes against their deduction for state and local income taxes.
Higher Education Deduction
The higher education deduction allows taxpayers to deduct – above the line – qualified tuition and fees for post-secondary education.
Under regulations, expenses paid by year-end for an academic term starting on or before March 31 of the following year qualify for the deduction in the year paid.
Charitable Distributions from IRAs
Individuals age 70 ½ and older will continue to be allowed to make tax-free distributions from individual retirement accounts (IRAs) to a qualified charitable organization. The treatment is capped at a maximum of $100,000 per taxpayer each year.
Mortgage Insurance Premium Deduction
This provision in the extenders package treats mortgage insurance premiums as deductible interest that is qualified residence interest subject to AGI phaseouts.
Mortgage Debt Exclusion
Unless excluded, cancellation of indebtedness income is included in income. The Tax Prevention Act of 2014 excludes from income cancellation of mortgage debt on a principal residence of up to $2 million ($1 million for a married taxpayer filing a separate return) through 2014.
Without an extension of this provision, debt that is forgiven in 2014 through a foreclosure, short sale or loan modification could be treated as taxable income. The existing insolvency exclusion, as well as an exclusion when mortgage debt is considered nonrecourse, continues to remain available.
Teachers’ Classroom Expense Deduction
The teachers’ classroom expense deduction allows primary and secondary education professionals (grades K-12, including school administrators and assistants) to deduct – above-the-line – qualified expenses up to $250 paid out-of-pocket during the year. Qualified expenses must be reduced by any reimbursements from the taxpayer’s employer.
Transit Benefits Parity
The extension of this tax benefit provides that the income exclusion for employer-provided mass-transit and parking benefits will remain on equal footing for 2014 at $250 per month.
Contribution of Real Property for Conservation Purposes
A special rule allows contributions of capital gain real property for conservation purposes, with the contribution to be taken against 50 percent of the contribution base. The extenders package extends this special rule through 2014.
The 2014 Tax Extenders could have a significant impact on your individual taxes. Remember that you only have this short holiday week to make a decision! If you have any questions about the extenders or how it affects you, contact our office. We will be happy to assist you.